The timing couldn't have been better. In response to yesterdays article, regarding rising interest rates and rising gold, and the fact that the two go hand in hand, a friend called and asked an obvious question. When will interest rates rise?
That's a great question. If we listen to Mr. Bernanke, there are no plans to raise rates in the immediate future. It is believed that could stifle the recovery we are supposedly experiencing right now.
However, housing data released this morning suggests no recovery at all. Existing home sales for February fell to an annual pace of just 4.88 million, off 9.6% from the month prior. House prices also fell which should cause anyone to seriously question recovery.
Yes, there are signs of increased employment . . . but not really! We're still losing jobs. And, I suspect without the major deficits we are incurring and all the quantitative easing, we would be losing jobs faster than ice melts on a Phoenix street in July. I heard a line the other day (can't take credit for this one) trying to recover the economy with printed money is like trying to outrun your face. In other words, you'll never catch up.
So disappointing is the news of today, rumblings of QE3 are beginning. Of course that bodes well for the gold price as printing more money threatens the dollar and is highly inflationary. I've always believed additional stimulus will be forthcoming, whether it be called QE or just budget approval - it matters not!
Now, back to the question of when will interest rates rise. Kenneth Langone, co-founder of Home Depot, nailed it this morning. The day that somebody won't take our debt. That's when interest rates will rise. Langone goes on to say, that will happen.
As far as I am concerned, it's already happened. The Fed doesn't buy treasuries because there are so many other people lined up to buy them. Which begs the question, what happens when QE2 ends? If the Fed is no longer at the window buying treasuries, the only way to entice other buyers may be to raise rates -- BANG!
If the Fed has to launch QE3, well then off we go down the same path we've been on for two and a half years, of more printed money and stimulus. Now, the snake begins to eat its own tail as the dollar weakens and the pool of would-be buyers of our debt shrinks even further.
Eventually, the snake will bite off its own head. Eventually, interest rates will rise and if history repeats, that's when the real gold bull market could begin.
Stay tuned. For the latest breaking gold news and FREE special economic reports, visit LearCapital.com.